Welcome to the Lannett Company Fiscal 2017 Fourth Quarter Full Year Financial Results Conference Call. My name is Ashley and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Robert Jaffe, Investor Relations for Lannett. Mr. Jaffe, you may begin.

Thanks Ashley. Good afternoon everyone and thank you for joining us today to discuss Lannett Company's fiscal 2017 fourth quarter and full year financial results. On the call today are Arthur Bedrosian, Chief Executive Officer; and Marty Galvan, Chief Financial Officer. This call is being broadcast live at www.lannett.com. A playback will be available for at least three months on Lannett's website. I would like to make the cautionary statement and remind everyone that all of the information discussed on today's call is covered under the Safe Harbor provisions of the Litigation Reform Act. The company's discussion will include forward-looking information reflecting management's current forecast of certain aspects of the company's future, and actual results could differ materially from those stated or implied. In addition, during the course of this call, we may -- we refer to non-GAAP financial measures that are not prepared in accordance with U.S. Generally Accepted Accounting Principles and may be different from non-GAAP financial measures used by other companies. Investors are encouraged to review Lannett's press release announcing its fiscal 2017 fourth quarter and full year financial results for the company's reasons for including non-GAAP financial measures in its earnings announcement. The reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is also contained in the company's press -- earnings press release issued earlier today. This afternoon, Arthur will provide a brief overview of the quarter. Then Marty will discuss the financial results in more detail, including the company's fiscal 2018 guidance, followed by Arthur's concluding remarks. We will then open the call for questions. With that said, I will now turn the call over to Arthur Bedrosian. Arthur?

Thanks Robert and good afternoon everyone. These are exciting times for us. Not only because our company has grown substantially in size and complexity, but also because we have continued new opportunities to further expand and diversify our business. Many of know my thoughts with regard to debt. We have been working diligently to delever the company. In mid-May, we voluntarily paid down the remaining principal balance of $25 million against our existing revolving credit facility. Since January this year, we have made payments totaling $125 million to pay down the entire outstanding balance of our revolving credit facility. As a result, we will save more than $7 million in annualized cash interest expense at current rates. Our investments in product development have gained dividends. Over the last few months, we received six product approvals, including one in May, four in June, and one in July. The approvals were levocetirizine dihydrochloride oral solution, Amantadine Hydrochloride Capsule, Niacin Extended-Release Tablets, two separate approvals for multiple dosage strength of Hydrocodone Bitartrate with Acetaminophen tablets and Cyproheptadine Hydrochloride Oral Solution. New product approvals are the growth engine for generic drug companies. We expect to launch all of these products as well as other already approved products in fiscal 2018 while at the same time continuing to streamline and move production to our facility in Seymour, Indiana. Turning to our financial performance, as most of you know, two weeks ago, we reported preliminary financial results for our fiscal 2017 fourth quarter and full year. Our financial results, which we issued today, were at the higher end of the range of the preliminary results we announced. For fiscal 2017, full year net sales increased approximately 13% to $637.3 million from $566.1 million for the prior year. Fourth quarter net sales were $139.1 million compared with $168.9 million for the fourth quarter of fiscal 2016. As we reported in our preliminary release, our fourth quarter was impacted by unanticipated items which totaled approximately $0.24 per diluted share as well as pricing and volume pressures. However, we expect our topline in fiscal 2018 to follow the improved [Indiscernible] of fiscal 2017. We also expect our adjusted gross margin for fiscal 2018 to be above 50%, which exceeds the average of peer companies. These margins reflect management's ability to execute an effective strategy. Our confidence is due in part to the launch of the products I mentioned a moment ago. Before I turn the call over to Marty to discuss our financial results and fiscal 2018 guidance in more detail, I'd like to mention that Sam Israel has joined our team as the company's first General Counsel. In addition to being an excellent attorney, Sam is the one individual who can hit the ground running. Prior to joining Lannett, Sam served as Lannett's outside General Counsel for the last 19 years. He was a partner with the national law firm, Fox Rothschild, where he served as Chair of the firm's Pharmaceutical and Biotechnology practice. Sam strengthens our team and I'm pleased to welcome him to Lannett. With that, I'll turn it over to Marty. Marty?

Thank you, Arthur and good afternoon everyone. As was mentioned earlier, I will be referring to non-GAAP financial measures. The reconciliation of the GAAP to non-GAAP numbers can be found in today's press release. Our earnings release also includes a schedule of our net sales by medical indication. Now for the financial results on a non-GAAP adjusted basis. For the fiscal 2017 fourth quarter, net sales were $139.1 million compared with $168.9 million for the fourth quarter of fiscal 2016. Gross profit was $68.0 million or 49% of net sales compared with $91.9 million or 54% of net sales for the prior year fourth quarter. As Arthur mentioned, our net sales and gross margin were impacted by several unanticipated items as well as competitive pricing and volume pressure across a number of products, which began in the fiscal third quarter and continued into the first month of the fourth quarter. R&D expenses were $11.4 million compared with $13.1 million. SG&A expenses declined to $16.2 million from $17.8 million. Interest expense decreased to $16.0 million from $21.8 million due to our efforts to reduce debt, which is a key priority for the company. Operating income was $40.4 million compared with $61.0 million for the prior year fourth quarter. Net income attributable to Lannett was $15.1 million or $0.40 per diluted share compared with $27.5 million or $0.73 per diluted share for the fiscal 2016 fourth quarter. Turning to our balance sheet, as Arthur mentioned, in mid-May, we voluntarily paid down the remaining principal balance of $25 million against our existing revolving credit facility. Since January of this year, we have made payments totaling $125 million to pay down the entire outstanding balance with our revolving credit facility. Accordingly, at June 30, 2017, cash, cash equivalents, and investment securities totaled $144.8 million and debt outstanding was $904 million. We continue to be well within our required debt covenant ratio. Turning now to our guidance. For the fiscal 2018 full year on an adjusted basis, we currently expect net sales in the range of $655 million to $665 million, representing a 3% to 4% increase over fiscal 2017. Adjusted gross margin as a percentage of net sales was approximately 51% to 52%, adjusted R&D expense in the range of $46 million to $48 million, adjusted SG&A expense ranging from $73 million to $75 million, adjusted interest expense in the range of $67 million to $68 million, the full year adjusted effective tax rate to be approximately 35%, and lastly, capital expenditures in fiscal 2018 in the range of $65 million to $75 million. Regarding the phasing of quarters in fiscal 2018, we expect first quarter net sales to increase in the low double-digit range as compared with our fiscal 2017 fourth quarter. For the remainder of the fiscal year, we expect net sales to increase compared with the first quarter and be spread evenly across all the three quarters. With regard to earnings, we expect first quarter adjusted EPS to increase by approximately 30% as compared with our fiscal 2017 fourth quarter with adjusted EPS for the subsequent quarters to increase compared with the first quarter and be similar to each other. While we have a deep pipeline, including a large number of product applications currently pending at the FDA, our guidance does not include sales from these products, nor does our outlook include the benefit of any potential acquisitions or strategic alliances or from possible further pay downs of debt. With that, I will turn the call back over to Arthur.

Thanks Marty. We have a number of initiatives in place for short and long-term growth. In the near-term, we're looking to enter the veterinary pharmaceutical and growing compounded pharmacy markets. Other opportunities include drug delivery devices, innovative API candidates, and adding vertically integrated products, as well as products to treat opioid addictions. As you are aware, opioid addiction is a growing issue nationally and this population is in need of affordable generic drugs for the treatment of addiction. We are working on the development of existing and new treatments for this population. Regarding the integration of Kremers Urban, we remain to fully achieve our anticipated synergies. Turning to our manufacturing assumptions, we continue to make excellent progress, transferring production to our Seymour plant. During the fourth quarter, we filed three product transfers with the FDA and we completed one product transfer that does not required FDA filing. We expect the transfer of three additional products from Pennsylvania to Seymour, Indiana plant in the current quarter. We are targeting the end of fiscal 2018 for production receipts in our Pennsylvania plants. With regard to our pipeline, we currently have pending at the FDA 18 ANDAs, including nine with Paragraph IV certifications. We are optimistic that we will receive several FDA approvals in the coming months in addition to our own filings; we have U.S. distribution agreement for 11 product applications at the FDA through our collaboration with ATC. ATC is expecting an FDA reinspection of the manufacturing facility next month, which may open the gates to net pending ANDAs. It is worth noting that one of the pending ANDAs is currently on the FDA's shortage list and ATC has indicated they could have product available within 60 days. On top of the products for the U.S. market, we are making excellent progress on a longer term opportunity for the distribution of up to 20 of our products in China by ATC. Obviously, the Chinese market is substantial. We're awaiting ATC to complete their market research and in the final words from Chinese FDA as the requirements for receiving marketing authorization. In addition, our combined effort with AGC to develop a generic insulin is advancing. We received FDA comments to our preliminary investigational new drug application for the product, and we are working together to develop the best plan for filing the application. We're on track to file a new drug application for C-Topical next month. We anticipate an approval to come within 15 months following the PDUFA submission of our application. With approved -- with approval soon, they will be able to market the products more broadly with FDA-approved claims. As we have said in the past, we estimate potential market for C-Topical to be approximately $200 million annually. We have engaged market researches to evaluate additional physician markets for C-Topical, including dentistry, facial plastics, OB/GYN, ophthalmology, and veterinary on top of the current ear, nose and throat emergency room and [Indiscernible] markets. In a few weeks, we expect to better understand the sign and potential of these additional physician markets for C-Topical. We continue to negotiate with UCB to acquire two of their products. If we could conclude the deals, these revenue opportunities will be addictive to our forecasts [Indiscernible]. Regarding our planned expansion of Cody Labs, construction has commenced. The expansion will allows to more efficiently grow our pain management business both AGIs and finished dosages. We are working diligently to identify additional innovative API, which will become the cornerstone of the ROI on this investment. We have already identified additional opportunity that will be able to be brought to the markets rather quickly. Finally, we believe pharmaceutical veterinary market has excellent potential for us. It is a market that has limited number of competitors. As recently announced we're looking at to the pharmaceutical veterinary market and extend our product offerings through acquisitions and alliances. To summarize what you have just heard, we have a number of initiatives that we have been developing to grow our business. We continue to file product application and launch approved drugs. We are close to submitting an NDA for our first branded drug and we are making progress further integrating Cody Labs and adding products to our pain management franchise, including APIs brothers. The execution of all these opportunities is well within Lannett's abilities. We are confident that we will execute on our strategic plan and our investment and efforts will pay dividends for years to come. With that overview, I would now like to address any questions you may have. Operator?

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And from Deutsche Bank, we have Gregg Gilbert.

Hi guys. This is Pravesh on for Gregg Gilbert. I just want you to know if you are -- if you have any new entrants you're planning or factoring in for levo in future?

I haven't -- what, I'm sorry?

If you are building in any new entrants or any one you're factoring in for levo in future?

No. [You mean] [ph] additional competitors. No, we're very comfortable where we are. Remember this is a narrow therapeutic index drug, [the] [ph] 12 strength. We've already discussed this with our customers. Most of them do not want to switch this product because it requires giving the patients the opportunity to have more blood work done, which most patients won't enjoy doing. And we don't believe that the new entrants in market will impact us. Remember, in our world, we always have additional generic competition and usually they'll [Indiscernible], it's just matching prices here and there. But since this has 12 strength, a very difficult product to make, we really are not that concerned. Look, I'm not trying to say it's never going to happen, but I've been hearing this question now for 13 years and we haven't had that additional competition. A lot of people claim they have applications but never got them approved. So, until they are approved, it's hard for me to do anything but to make sure that my customers plan to stay with me and we have raised those issues with them and I am not concerned that we're going to lose business to a competitor on that item.

Okay. And just a small follow-up. So, what are you factoring in for base business erosion next year versus new products for the guidance you just gave?

If you're asking about new products, we -- so we had a series of products, as Arthur mentioned, that were approved in the last several months, we have not launched yet. Those products are in our guidance. And any products which we have with FDA and we're hoping that have let's say approved in fiscal 2018, those are not in our guidance.

Okay.

I believe your question was about planning about additional price pressures, thing like that. We've had those baked into our guidance. We have taken that into consideration that there is some tough pricing out there out there in the marketplace. But quite frankly, the impact on the wholesale, for example, was pretty severe as they continue to press manufacturers for lower prices they'll continue to have lower earnings. So, I don't see that continuing as a trend forever. And as I said to some of you, I expect that to end by September 2018.

Okay. Thank you.

Thank you. And from Raymond James, we have Elliot Wilbur.

Hi, this is Lucas Lee [ph] in for Elliott.

Hey.

Hey. On a non-GAAP basis, the fourth quarter interest was around $50 million. But I see the 2018 guidance is approximately $67 million to $68 million, which implies an increase. Do you think you could provide some color around that? And as a follow-up, what is your expectation for debt pay down in fiscal 2018? Thank you.

Yes. Are you comparing which quarters?

Yes.

I'm sorry. Which quarter were you comparing? I'm sorry.

Fourth quarter 2017 -- this current quarter.

To?

I mean, it came in at $50 million. If you just multiply that by four, it would imply around $60 million for 2018, but the guidance is at $67 million to $68 million.

Right. What happened is that there are several other items in our other income and expense categories. It's not just interest. So, in essence, we had about $3 million or so of favorable items, [Indiscernible] in the quarter itself we had about $1 million of favorable items in the fourth quarters. So, that actually brought down the interest -- brought down the expense line of other income and expense. So, it’s a little bit -- not that clear in that sense. When we issue our K or 10-K, you'll be able to see the full detail. In essence what we have in our interest expense on the full year basis in fiscal 2017, total expense was about $69 million -- just that one item, $69 million for the year. It decrease down to about $67.5 million on a full year basis for fiscal 2018, the decrease it's really two different effects, it’s expense which fiscal 2017 we had our revolving credit facility outstanding. So, [Indiscernible] interest expense [Indiscernible] with that in our fiscal 2017 numbers. Meanwhile, in fiscal 2018, we have included some degree of interest rate increase. So, we took [Indiscernible] right now which is about 6.5% on a blended rate and we increased that by about one quarter in each of the following three quarters for fiscal 2018. So, hopefully, that helps with what you're doing there.

Yes. Thank you. And the follow-up question is that what's your expectation for debt pay down in fiscal 2018?

On 2018, we really just have our -- for now, we have -- our expectation is that we would meet our mandatory payments on term loan A and term loan B. The mandatory payment is 5% annually on the two items and that's the extent to which we're including debt pay down in fiscal 2018.

Okay. Thank you. I'll go back in the queue.

Okay.

Thank you. And next from Craig Hallum, we have Matt Hewitt.

Hi, this is Charlie on for Matt. Thanks for taking my questions. First, a couple regarding the pipeline. First, appreciate you providing an update on a number of ANDAs that you have at 18, could you provide a total market value for the pipeline?

Not on this call because generally that changes almost daily depending on who comes into our market on these items. So, we generally don't do that. But I could return the call; let you know by tomorrow what the current numbers would be for that 18, if that's okay.

Sure, yes. No, that's really helpful. And then just kind of, again, with regards to the pipeline, can you talk a little bit or provide a little bit of color on how backfilling efforts are going? You're seeing a lot of approvals coming out, I just want to -- wondering how you guys are backfilling it?

Backfilling, you mean filing additional applications?

Yes, exactly.

Well as you know, we hired a VP of R&D recently, she started in June. So, we've already started the process of bringing in additional staff, additional equipment. So, she is still ratcheting out and we're also focusing a little better on the application and what products will be deployed to try to get the best return on the investment in the time. So, when we took all the Kremers, our first example was to look at both R&D pipeline and products that are in development that will become an FDA pipeline and see which products we should remove, which ones we should continue with. And of course, we did lose our R&D individual during that timeframe. So, there was a period of time when we didn’t have a leadership for that area. But with Kristin Arnold joining us, she's now ratcheting up that opportunity. So, we'll be submitting applications in the agency this fiscal year to be on track to be able to get those products approved. The good news about the delay quite frankly is that the timing of these applications now instead of having submitted them won't clearly hurt us in terms of the approval, because the FDA is ratcheting up the approval process. So, as we file, we won't be delayed because of the delay we encountered in analyzing the two product pipelines from the different companies that acquired Silarx, ourselves and the Kremers pipeline. So, I don't think there'll be any harm from that delay. But that would be one that concerns that would impact us going forward. But we're okay with where we are with our filings for this fiscal year.

Okay. That's great to hear. And then just one more. Some of your peers have noted some API supply issues that have led to some delays in approvals. You guys have seen a number approvals come through, have any of those impacted your ANDAs at the FDA?

No. Nothing -- of all these approvals go, the only one that it did impact was one we received last February, the [Indiscernible], that was the one, they approved our application, the raw materials was already approved by the FDA. And as subsequent to approving the application, that firm in China was sales and inspection and that issue is being litigated with the agency because instead of allowing us to substitute and have a supplier, which we have readily available because if you recall both Kremers and Lannett both received the [Indiscernible] approvals within a couple of months of each other. So, we can substitute the API supplier from the Kremers application from ours and that is something that's in litigation. So, I don't want to say anything more about that. But that happened previously a while ago.

All right. Well, thank you. That's it for me.

You're welcome.

Thank you. And next from Susquehanna Financial Group, we have Andrew Finkelstein.

Hi, good evening. Thanks for taking the questions. I was hoping you can talk a bit more about how you frame the guidance in terms of -- if we think about revenue guidance to-date, how much is approved at unwanted [ph] products and then in terms of pricing pressures in the business, obviously you factor some in, but off of what's the right date [Indiscernible] this fourth quarter adding a number of maybe unusual items. But what's the right revenue date to think of [Indiscernible]. If you could [Indiscernible] fourth quarter you introduced about $100 million in product more erosion, so if you help frame that up that would be very helpful. And specifically you talked about not being concerned about [Indiscernible] therapy business, but are you factoring similar [Indiscernible] net loss compared to fiscal 2017.

Andrew, I'm sorry. It's little hard for us to fully understand what you're saying. I think you're looking for some sort of color around how we did our topline guidance numbers, is that about correct?

Yes. And specifically on legal priorities net pricing assumptions for 2018 versus 2017?

Okay. Let me give you the global answer. I don't believe we're going to get into the specifics on how we came up with the legal outlook for fiscal 2018 full year and quarters. Let me explain how we did the guidance. The guidance is done as we do our -- pretty much our regularly occurring here -- actually monthly forecasting on a rolling 12-month basis. What we do is for the topline, it's a an effort between our sales team with support from finance where the team goes through product-by-product with best visibility [ph] that might happen in each products and literally project out the remaining -- the rolling 12-month outlook for that particular product both on units projections or estimates based on working with units and then again with pricing or prices. So, it's very in-depth projects that mostly results in the numbers we have internally. And then as Arthur always says, we tend to take a conservative look when we provide guidance to the public markets. So, we layered other level of judgement on the numbers that are developed and that results in the guidance -- the sales guidance, which we're providing today.

And can you talk little bit more about the 4Q run rate? And how you think about what the current -- what a good number for the current pricing volume of the portfolio is?

Sure. Well, I can tell you what I can tell you here at this stage the -- so we provided the outlook, that's low double-digit increase in sales from the $139 million in the fourth quarter to we think it's a reasonable estimate for the first quarter of fiscal 2018. But back on that fourth quarter number, as we said, when we did our prerelease, we felt that there were least start lines [ph] that were [Indiscernible] which gives ones an incorrect impression of what our run rate is. And to that number, to the $139 million, we believe you would add about $6 million -- $7 million to $8 million of sales that was a negative impact of -- what we would have characterized as one-time or non-recurring items. So, $139 million gives you a run rate of about $146 million, $147 million, which then going into the first quarter of fiscal 2018 that double-digit increase that we spoke, it really comes out to about 5% increase from the normalized fourth quarter to our first quarter fiscal 2018. That's the logic we see and then the remaining three quarters of fiscal 2018 as we say is the remaining balance we have on taking the full year outlook, subtracting what you come up with the first quarter and the remaining three quarters are fairly similar in our estimates, in our guidance.

All right. Thanks very much.

Okay. Thank you.

Thank you. And our next question from BMO Capital -- from Raymond James is Elliot Wilbur.

Hi, this is Lucas again. A question regarding a price erosion. You have alluded during last quarter that it was around 7.5%, is that the level you factored in for fiscal 2018 guidance?

For the guidance, pretty much as I explained on that last our call -- for that last question, we do have price decrease -- first of all, there's no price increases in our guidance for fiscal 2018. We do have price decrease. We're not [Indiscernible] to be explicit with that number, but the exercise I just described about growing product-by-product, part of that exercise was to make our best estimate of what pricing will do for each product over the next 12 months, and that's your guidance. The ultimate assumption, for example, for some of the additional later more recent consolidation that's happening in the industry, we also made a -- necessarily what we thought that impact could be in our numbers.

And in addition, some of our products will increase in revenue more units being sold as well.

Got it. And lastly, I have a higher level question. Given current trends in the opioid space, continued volume and price pressure and the possibility that the [Indiscernible] business is sold to a player that could accelerate those pressures, how are you thinking about the long-term growth potential of this market and Lannett's potential advantages within this space? And do any of the current market dynamics alter your thoughts in terms of the type of assets you may pursue? Thank you.

Lucas, I think I'll take that question. That's a good question. My attitude is the pain is being visited on my competitors right now. As you know a lot of them closed down the facility that manufactured Hydrocodone and [Indiscernible] and I believe they have exited the market to some degree. So, I look at the market this way, when we started filling [ph] this area, it was in 2005, the market was $3 billion, it's now $30 billion. Even if you would come to market by a third or 50%, it's still a huge market. So, I don't see the trends being negative. We're now enjoying the fact that there's an opium addiction in this country. But a lot of that stems from not necessarily product we're talking about manufacturing. It will need us the illegal use of heroin, [Indiscernible] where some of the debts are coming from. And certainly, the prescription abuses and most of us will visited all my competitors who was not been careful in the way they sold their products. So, you certainly have a lot of, let's say, sloppy behavior out there that expanded that opioid market. And now some of that is coming back to ruse to them -- to those companies. We see this is still a great opportunity for us because going forward, we're starting with a new facility, refining better ways to vent the products, which means less debts in the API production, so that the profits will be greater for the production of the API versus let's say the Mallinckrodt used as an example that has facilities that are well in excess of 100 years old. So, you're comparing a state-of-the-art facility that we'll be operating from with some state-of-the-art. As far as whether group buys the company, we really don't know what the future will be, but most people acquire company don't reduce the gross profit margins when we launch new products because they're too busy figuring out how to pay down the debt that they took on to buy it in the first place. So, for example, private equity doesn’t go around and creating price wars as an example, they tend to be responsible people. Yes, you could get strategic in there where they you look to grab market share, but they are concerned right now using Mallinckrodt as an example is losing market share. We don't have anything to lose. We have everything to gain going into that market. So, from our perspective, we see the pain that's being suffered by our competitors to be something we avoided by not being in that market already. And obviously another factor, the opioid requires quotas. You have quota announcements for the DA where they said they're going to reduce the quotas this fiscal year -- the one that's coming up, by 25%. Remember, they give the quotas -- you apply the quotas in April of a calendar year for the following calendar year. So, the quotas that they're cutting by 25% on schedule too will impact my competitors again because I don't have any quotas really to lose here. So, you could say that the timing of our entry here has been rewarding or will be rewarding for us or a pleasant timing when my competition is concerning exit the market and we're going into with lower cost production capabilities. And that's the goal for Cody to produce products at lower cost than our competitors have been able to do. We're also very integrated Mallinckrodt where we will have the advantage of being state-of-the-art facility on the Cody side for the API. So, I granted you people a very optimistic guide, but it's hard to be looking at this realistically and now the other way that to be optimistic about it, vis-à-vis, our company anyway. So, I hope that answers your question.

Thank you.

You're welcome.

Thank you. And next from BMO Capital Markets, we have Gary Nachman.

Hi, good afternoon. Arthur, are there specific bidding cycles with the consortium you're still waiting for? Or have the renegotiations been sort of random? So, is there anything significant change with any of your customers? And I'm specifically interested in methylphenidate ER; it looks like you've lost some share there? And what are your assumptions for that product in fiscal 2018?

I hate to brag, but check our results on methylphenidate going forward. I think you'll find the increase and you're right, we did lose the market share, but the salespeople has taken steps to -- and have resolved that. We started to see some business already coming in. So, I could be optimistic about it because we know we're getting the orders. The concern I have there is really not as bigger impact as you would think. The big concern, of course, is you have additional AB rated products, we're still working with the agency to try to get our restored, but the AB rated products that are approved have indicated they are not going to launch till the end of the year, at least one case I believe one of the first that got approved has now talked about launching till the end of the year, which probably means they will wait till get their quotas in January. The other companies that got it sooner has not been able to grab any market share. So, there hasn’t been much traction of the AB rated product. So, I believe we now have three AB rated competitors. We authorize generic as another competitor on the BS. We believe we're in a good position to increase the revenue on that product. We don't see any downside because we've already secured some additional business this fiscal year.

Okay. And the bigger picture question. Just on the bidding cycle with the consortiums?

Sorry. Thank you. The bidding cycle. It's really -- as far as I know, and I'm not in sales, so I don't want to saw I know this incidentally, but there's no really bidding cycle per se. Generally, they put their bids out in -- they need to line of suppliers and then bid cycle in place until the summer comes along and also better price they want us to match or something or we want to do more business with them or having raw material source terminals with their other vendors and come back to us as happen, we want to buy more from you than we're buying now, could you supply this additional quantity? One of the advantages we've always had is we have helped the inventory and generally when someone else to my competitors is unable to supply, that's an opportunity for us to jump in. And those are looking in our face really for this fiscal year. Some of the opportunities already have come to fruition. So, from my point of view, there's really no cycle that comes up when they tend to do this once a year. I know in January we cheered to -- I don't want to mention any names, but one of the competitors will put out their business standards and then -- but that's really not focusing on a new cycle of bidding. If you're already a supplier, you remain a supplier for a timeframe. The newest entrant of course, came roughly in, I'm going to say March and April, and they've already put all the -- they received all the bids they're going to get. So, I don't see any more pressure coming from those consortiums. So, quite frankly, let's be clear about it, all three of those consortiums we talk about here have declared the difficulties they are facing with earnings and their earnings dropping and are dropping. Without pressure, it's coming from the consortiums to the manufacturers. So, the more pressure they put on us to lower their prices, means the lower their earnings will be. There comes a point where they have to worry about not making any money reselling these products. In the past, we're their bread and butter. Today, generic drugs is their bread and butter. If they continue to destroy the business that gives them all their revenue and profit, where do they end up? So, I believe there's an opportunity that this will stop in this year -- by the end of -- by September 2018 that this kind of behavior will come to an end. And I believe that's what we're focusing within our optimism, but we see some of that already occurring.

Okay. And then on levo, you mentioned before you don't really see a competitive threat, but just regarding the agreement with Jerome Stevens, just remind us when that expires, and how comfortable you are that you're going to be able to renew it? And when are we going to have visibility on that just given the concentration that you have and the portfolio with that product?

Well, the contract comes up for renewal in March of 20 -- excuse me, March 2019 and for an additional five years, we negotiate on those terms have already been established. As you know, so we really have to come to an agreement on whether we'll renew it with each other. The purchase price has already been established and that's in our 10-K, its 1.5 billion shares to renew the agreement. So, from the timing point of view, we're talking about something that's about a couple of years off or 18 months away from now. And we've had very extraordinary service from them as far as they're being a vendor to us. So, we have no reason to leaseback, that's for sure. And they're still not my personal friends, so I guess they don't like me, they might change their mind. Hopefully, they still like me because last time I checked, they did. So, I don't see any concerns about renewing the agreement or going forward. We're both doing a good job for each other here and we have extraordinary success with their product. But they have also been extraordinary supplier, we're hand-in-hand, it's been a great relationship. I hope that answers the question.

Yes, it does. And then just one last one. I guess looking out a little farther out for you, how much could the API and vet businesses and the China partnership, how much could those contribute for you going forward? I'm assuming and just confirm that none of those are in the guidance in any way for this year. But when could those really hit and how big of a contribution could they be for you?

That's a good question. I don't have the answer to you yet because the problem with the vet field, for example, is there is no IMS dating you can turn to to review product. So, it's really a very difficult way to try to find out from the veterinary distributors that are in the business and some veterinary [Indiscernible] how much of what products they purchase. But for example, we've been looking at opportunities for products that are oral solutions, for example, or topical solution for animal. We're marketing based on the cost of the raw materials and looking at the prices in the human market; we realized we can make a lot more money in the veterinary field. Some of our products are already sold into that felid and we reached out to someone that has a veterinary license, that's the only other license for this product. So, there's one product in the vet field or any with the sense of product, there's another license that do not fits all [ph]. But I don't have the information for what the other companies are doing in a vet field. So, we have these things like trying to figure out how much raw materials were imported that try to gauge what that market is. So, this is a tough question you've asked me, because we're struggling to get all information as well. On the Chinese front, that's a new opportunities there. Well, we certainly know was 1.4 billion people and roughly a third of them are middle-class or higher wealthy people that the opportunities like an equivalent to one United States. But the problem is we have to find that from the FDA -- the Chinese FDA what the requirements are and are currently trying to do that in China. They're also doing market research for these new products that are not available in China and it's hard for them to get back to the -- we're now doing a lot of research. So, I've been a little impatient myself and trying to get some idea. But I don't want them to just give me an idea of a number that's not really based on facts. So, they have assured me they're continuing to work with their FDA in China to see what the requirements are to get approval, how long the approval process will take, so I can match it up to the revenue projection they might give me and then answer that question. So, yes, the second part of your question is not in our guidance and in our revenues, it doesn't mean if we're able to able make a deal on the antibiotic product that would be able to launch this year, but we stopped the pile of supplement, it’s a site change Cb30, so there is some delay waiting for FDA to approve that. So, I can assure you it's not in our guidance or in our projections at this time. These are just new avenues we're looking at because we're not able -- by ourselves, we cannot change the environment that's going on within the human generic drugs. Well, we certainly know that in the veterinary field you don't have the kind of difficulty that the human drugs are being faced with, both brand and generic in terms of pricing and such. And we all know that the norm is about compared [ph] animals in this country. So, we just look at this and say we going to make drug, we already strong into this field, why not expand on the area and that's exactly we're doing to expand into the areas in that field. So, maybe another quarter or so, I have that information for you.

Okay. Thanks a lot.

Thank you.

Thank you. And next from Canaccord, we have a question from Dewey Steadman.

Hi guys. Thanks for taking my question. Arthur, now that you're fully warmed up and ready to chat, I was wondering if you could expound a little bit on your thoughts on consolidation within the sector. Given that there's probably 100 or so labelers out there in the generic universe and only three or four major buying consortiums, how do you see Lannett playing into the potential for consolidation?

Well, it's funny. I read something from another CEO about the market. I don't disagree that there will be some consolidation within the space. But as everyone has realized when you're consolidating in this marketplace, it doesn't help you with the consortium at all. It doesn't matter whether you're with probably the broadest product line of anybody, when you're trying to win against all the other players that can knock off parts of your product line. So, while they have the cloud of the largest product lines, they are unable to deal with that inevitability anyway. In our case, we've been doing this now since 2002 and Lannett since been involved and Kevin Smith, Senior Vice President of Sales. And we've been up against the same problem over and over again, that hasn't changed in 49 years. I can sell cheaper than you the modus operandi in the generic drug space, because we're selling to commodity and just like to gas-filling station, you have to be competitive with each other. So, [Indiscernible] has grown this company dramatically by just doing it the old fashioned, filing an ANDA, getting approval, launching the product, customer service, supply product, having tremendous track record with compliance, having virtually no recall, God willing. Having no other issues for our customers, we get more business from people from our side of the company than some of our competitors do. Think about some of the companies that have been stopped in midpoint in the United States. If you are up chain and all of a sudden products cannot be brought in, then scramble to find someone who could supply the volume of product that they require and I mean all the five or six different companies. And if they don't have anything on the shelf, what do they do to merchandise. We don't cause that kind of grief for our customs. They know they can depend on us. They know we're going to supply them. We may not be the cheapest in the marketplace, but they know we're the most dependable. And I think those are the reasons we've been successful. So, do I see someone -- volume at some competition? Sure, I see that happening. But in this industry, this space, it looks like the only people going out and looking to buy things are mainly the target equity shops. Most of the banks don't want to lend in this space, a lot of people are concerned about when where price declines will stop. I already believe it's going to happen in the year from now. So, from my point of view, I think I know where it's going to end. But I'm not looking to buy anybody, my goal is to delever Lannett. There are some good opportunities out there, but first you got to pay off your lenders.

Thanks. And then just touching on the compounding a bit, you touched on potential area for expansion, would this be through 503B pharmacies or through some other potential avenues?

The 503A and the 503B, both compounding pharmacy one is inspected by the state and one is inspected by the FDA. When we looked into this market, we've seen some pharmacies growing at a rate like $10 million in two years from date of launch. So, there's a lot of opportunities in these places. Both the Cody and some API too, which is one aspect. And quite frankly, a lot of the competition we have on our C-Topical is coming from compounded pharmacies. So, you can say if you can't beat them, you got to join them. We're looking that at as an opportunity that can happen in the -- [Indiscernible] to immediately. I don't need to file anything, wait from an approval, it's just going up, I know what they want and supply it. And Cody has that relationship in the compounding pharmacy space prior to us acquiring the company. So, it is an area we know could be growing. And we're pursuing that. So, we've had meetings with some pharmacies in that field and we see that as an opportunity. When you're facing the headwind that everybody talks about in a generic drug space, you either sit there feel sorry for yourself or you go out and find new opportunities. And I have to tell you, we're finding plenty of new opportunities that we may not have decided to go on previously because the market was growing and robust within the human generic drug space. Now, that it's facing these headwinds, we have to go out and find other opportunities to grow the company. We have to grow the company. That's the bottom-line.

Okay. And my final question just on C-Topical? I just wanted to clarify a point. Did you say you're expecting a 15-month review timeline for the approval submission or did I hear that wrong?

Yes. What my colleague was telling me Christie Stevens [ph] was pointing out to me that on the PDUFA, there's an action date of 12 months. So, when you file the application, you have to have an action. She reminded me they could approve it in 12 months or you can have an action and there would be a delay. So, she said to be on the safe side, if you were to mention anything on the call, she was more comfortable with 15 months. She says that way we cover ourselves and not to be optimistic. It's our first new drug application for the PDUFA rank and certainly a very serious application has been I believe somewhere in the neighborhood of 1 million documents that have to be put together for the clinical trial work that we did. So, she just was trying to cover her basis. I guess she does want me to point out that we missed the 12 months thing. But I'm still optimistic that we'll something approved quickly. There's no real difficulty with this product. It's well known. So, this is our guidance. Give or take, she said, give us an extra three months. But the filing is still next month.

Okay, great. Thank you, guys.

All right, thanks.

Thank you. And our next question from Roth Capital is from Scott Henry.

Thank you. Good afternoon.

Good afternoon. Hi Scott.

A couple of specific questions as we think about 2018. And Marty, I don't know if you want to give guidance, but I'm just trying to think directionally, for instance, for the thyroid deficiency line, I think it was about $174 million in 2017. What are you looking for there in 2018, slight growth or -- I'm just looking for some directional comment?

Well, you're right that we're not going to give specifics or specificities, but we do see it increasing, Scott, year-on-year. We talked a bit about the competitive landscape and what our anticipation is for -- at least for fiscal 2018. So as I say, we do have a product increasing. Probably not going to tell you how much, but it's -- let's just leave it to say that the product is increasing and we're comfortable with what we have.

Okay, great. And another question. Q4, the revenues pulled back significantly. It wasn't completely even across the Board. We're thinking about next year, would it be better to kind of look at what we saw in Q3 than in Q4? Or was there any sort of kind of method to the madness why some products were hitting harder than other in Q4?

The delay we're looking at -- Q4, we did our previously -- back earlier this month, we talked about $0.24 of unusual non-recurring items. On the sales line, as I mentioned it was in the previous caller here, we would characterize about $7 million to $8 million as the one-time items that impacted the sales volumes. So, I do think normalize fourth quarter about $146 million, $147 million number like that. But that is low -- would have been our lowest -- even our normalized level would be our lowest quarter in fiscal 2017. But again, impacted by some of the market dynamics that we've been speaking about in terms of the pricing and volume and consolidation on the buyer side. The third quarter on the other hand -- for fiscal 2017, the third quarter was a bit strong, stronger than the other 12. We started off with a weaker first quarter last year and improved it sequentially through the year. I would just encourage you look at it as we described it before that against that normalized number for the fourth quarter about $146 million to $147 million, take up about 5% then you get to what we think is a reasonable number for the first quarter, that's what we're trying to get people to -- then they're making three quarters in fiscal 2018, they're all higher than the first quarter and they're all about consumer levels get you at that midpoint of $660 million for fiscal 2018.

Okay. And then a couple of your key growth drivers, Ursodiol, [Indiscernible] also has an impact in your revenue line. Can you talk about any changes to the competitive dynamics for those three products or is it relatively stable from last quarter to this quarter?

It's relatively stable.

Okay, fair enough. Well, then that that should do it for my questions. Thanks.

Thanks Scott.

Thank you, Scott.

Thank you. And we have no further questions. At this time, I would like to turn the call back over to management.

Well, I want to thank everybody for joining us on the call today and look forward to speaking to you in the next earnings call. Thank you very much for your support in Lannett Company.

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.